How to Sell a Car to a Family Memberby Michelle NatiUpdated September 23, 2022
Transferring ownership of a vehicle to a family member is very similar to transferring it to a stranger; however, the donor may wish to give it away or “sell” it for a greatly reduced price to a relative, so as to avoid paying sales tax on the vehicle’s value.
When weighing gifting a car vs. selling it for $1, it’s best to research the laws in your state so that the interaction is fair and legal for both you and the recipient. Before a donor makes an attempt to give the car away, they must own the car outright.
The Process for Gifting a Car to a Family Member
If you wish to give a car to a family member, you should first make sure you legally own the vehicle. A lien check will show if anyone else claims a stake in the car — if the check comes back clear, you can begin the gifting process.
If you still owe money on the vehicle, it’s best to pay it off before giving it as a gift. If you fail to do so, you won’t be able to transfer the title, as you won’t own the car outright.
The donor must transfer the title to the recipient by compiling the transfer information, which is typically on the back of the title itself. This step must be completed, otherwise the giver retains ownership. The recipient then takes the title to their local DMV to complete the transfer.
Some states will require additional documents, such as a statement of facts, affidavit for transfer without probate or other documents, which is why it’s important to check state requirements. Additionally, states will typically require proof of insurance, which is up to the recipient to provide.
Paying Taxes on a Gifted Car
No matter the state, there are always fees on a gifted car, such as a title transfer fee, registration fee and even a smog check fee. The buyer will also likely pay sales tax on the vehicle, but this will depend on the state.
Some states do allow exemptions. For example, California residents can apply for a tax exemption when getting new plates for their gifted car, while those who live in Florida need only to show the bill of sale or gift or an affidavit when at the DMV.
Can You Sell a Car for $1?
As the gift of a car can be valuable, states usually calculate tax on a vehicle’s fair-market value, which can be pricey for the recipient. Therefore, some people will sell their car for $1 to their family member, hoping to avoid sales tax on the vehicle’s value instead of the purchase price. Again, this will depend on the state in which the vehicle's transfer occurs.
According to the Internal Revenue Service, the maximum gift a person could receive in 2021 was $15,000. This annual exclusion went up to $16,000 in 2022. If you give a family member a car worth more than that, you must file a gift tax.
- The car buyer will need to register the vehicle and have it properly insured prior to driving it. The rules for registering vehicles are state specific, so the buyer should contact the motor vehicle office in her state to determine how long she has to register the car and whether it needs to be re-inspected. Some states that require buyers to get their cars inspected waive the rule for buyers who purchased the car from a family member.
Michelle Nati has written car content for Granite Media/Big Edition, Ranker and Donut Media. She holds a B.A. in Communications and English from Niagara University.